26 organizations, led by the Consumer Federation of America urge reconsideration of the DOL policy allowing defined contribution plans to invest in private equity funds.
Issues raised to the DOL over its original letter considering allowing such funds into private equity include:
- It fails to give adequate consideration to the capacity of the typical plan sponsor, offering a defined contribution plan to its workers, to conduct the independent analysis that would be required to make a prudent selection or to provide appropriate oversight of plan investment alternatives that include private equity exposure. There is strong evidence to suggest that the majority of defined contribution plan sponsors would not be well- equipped to fulfill those responsibilities.
- It cites the potential for private funds to out-perform public market investments, but fails to cite any evidence to support this assumption and ignores evidence that calls industry’s claims of out-performance into serious question. By repeating industry’s out-sized performance claims, it could lead plan sponsors and plan participants to over-estimate potential returns and under-estimate the potential risks of private equity when weighing their investment menu selections.
- It contemplates permitting funds with a private equity component in certain types of investments – including collective investment trusts (“CITs”) and target date funds – without adequately weighing the particular risks they could pose to defined contribution plan participants.